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How is Tranzyme really doing?

Tranzyme Pharma(Nasdaq: TZYM) likely had hopes for an opening bounce on the day the drug development company went public, but that ball fell flat.

The Research Triangle Park, North Carolina company's stock price closed at $4 per share, the same price for the stock as when Tranzyme's shares started trading on Monday morning. During the day, the company's stock price ranged from $3.95 to $4.19 per share.

Still, the company had signaled it realized there was little air to give its pharmaceutical stock much of a bounce. Last Friday, Tranzyme revised the terms of its registration statement by offering to sell more shares for a lower price. When the company initially filed its IPO plans, the company outlined terms that had the company raising up to $65 million by selling 5 million shares for between $11 to $13 per share. At a midpoint price of $12 per share, Tranzyme expected net proceeds of about $53.8 million.

But by selling 23.7 million shares on Monday at $4 per share, the company raised about $48 million after expenses. The fact that the company had to slash its offering price and sell more shares means buyers weren't willing to invest in the stock at the higher price point.

The cut is also consistent with other biotech IPOs this year. A Wall Street Journal blog notes that while Tranzyme is the fifth venture-capital backed biotech to go public this year, it is also the fifth such company to slash its offering price.

Adding more shares dilutes the stakes of the venture investors. Tranzyme has raised more than $60 million in equity financing from investors including H.I.G. Ventures, Quaker BioVentures and Thomas McNerney & Partners.

Not all pharma companies that went public this year can say they raised the money they needed for clinical trials. The Wall Street Journal goes on to note that AcelRx Pharma(Nasdaq: ACRX) hoped to raise $69 million by selling 5.77 million shares for between $12 to $14 per share. The IPO went ahead at 8 million shares for $5 per share, raising just $40 million. Now AcelRx's shares are hovering around $3.

Tranzyme's lead drug candidate, ulimorelin, is being developed as a treatment for post-operative ilius or POI, a condition in which the gastrointestinal tract stops functioning normally following intestinal surgery. The funding will finance late-stage clinical trials on ulimorelin. While the drug candidate would fill a medical need, pharma stocks, particularly in developmental stage companies, are seen still seen as a risky bet. Tranzyme has no approved products and no revenue from sales.

Tranzyme does have pharmaceutical partners, and it may very well need them. Last year, Tranzyme entered into a license agreement with Norgine that gives the Dutch specialty pharmaceutical company rights to develop and commercialize ulimorelin in Europe, Australia, New Zealand, the Middle East, North Africa and South Africa. Key to this deal is Norgine's agreement to help finance the phase 3 trials on ulimorelin. If Tranzyme can't raise sufficient investor interest from the public, it will have to rely on the bounce of a different ball: the commitment of another pharmaceutical company to bring a new gastrointestinal treatment to market.